Switzerland's two biggest banks are merging, after regulators intervened to prevent the smaller one's problems from affecting the global banking system. The deal between UBS and Credit Suisse was announced Sunday night by Swiss President Alain Berset. The country's finance minister said that had Credit Suisse filed for bankruptcy in response to its crisis of confidence, it would have caused irreparable consequences for world financial markets, Reuters reports. Regulators wanted to finalize the merger before markets open on Monday, sources tell the Financial Times. Berset did not announce the value of UBS' purchase, per the AP, but insiders had estimated the all-share deal at $1 billion.
That values the bank at the equivalent of 27 cents a share, well below the $2.01 the shares closed at on Friday after days of turmoil that added to worries about the world's banking system. The sources tell the FT that the Swiss government plans to bring in emergency legislation to bypass a shareholder vote on the merger. Credit Suisse is one of around 30 banks worldwide considered so important that they are "too big to fail," though it has been struggling with issues including money laundering investigations for years, the BBC reports. Switzerland's central bank offered the bank a lifeline of almost $54 billion last week after its largest shareholder, the Saudi National Bank, said it would not put more money into the money-losing bank.
Sources tell Reuters that UBS is seeking at least $6 billion from the Swiss government as part of the deal to cover the costs of winding down parts of Credit Suisse's business. Mohammed El-Erian, chief economic adviser to German financial services firm Allianz, tells the BBC that Swiss authorities intervened to maintain confidence in the banking system. "This is not a voluntary action, this is a shotgun wedding and it's being done in order to restore financial stability," he says. "Without it Credit Suisse may end up in a death spiral, in which it finds it much harder to undertake its banking activities."
In a news conference, Berset described the deal as "one of great breadth for the stability of international finance." Many of the problems at Credit Suisse are unique to it, per the AP, and don't parallel the weaknesses that sank Silicon Valley Bank and Signature Bank in the US. The first sign of whether the merger will reassure lenders could come when stock markets in Asia, Australia, and New Zealand open Monday, per Reuters, just hours after the deal was completed. This file has been updated with the announcement of the deal. (Read more Credit Suisse stories.)